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Singapore is competing aggressively with India and China for a piece of the Asian sourcing business.
If you have traveled to Singapore lately, chances are there have been a number of other pharmaceutical professionals on the plane with you. The island nation has launched an all-out effort to attract bio/pharmaceutical companies and has enjoyed considerable success. Several major pharmaceutical companies, including Merck, Pfizer, Wyeth, Novartis, and Schering-Plough, already have manufacturing operations there, and some contractors are taking a serious look at Singapore for their Asian presence.
As with other popular offshore pharmaceutical hubs Ireland and Puerto Rico, the big draw of Singapore is the tax benefits offered to pharmaceutical companies. Profits on the manufacture and sale of active pharmaceutical ingredients are subject to little or no corporate tax. Those tax benefits, combined with workforce development and education programs, investment participation by the Singapore Economic Development Board (SEDB), political stability, and a legal regime that respects intellectual property, have enabled Singapore to compete with the cost advantages of India and China.
As yet, few contract services companies have been attracted to Singapore. The local base of pharmaceutical companies is still quite small, and it is difficult to structure a business model that can translate the tax savings into costs that are competitive with those of India and China. Still, the government believes it must build a services base if it is to continue to attract pharmaceutical companies.
"CROs and service providers are an important part of it," says Beh Swan Gin, director of the Biomedical Sciences Group of the SEDB. "If we want to go out and try to attract leading US and European companies, we need those providers in place here."
Singapore's central location and excellent transportation links have made it attractive as a base for several CROs. Quintiles (Research Triangle Park, NC, www.quintiles.com) has made Singapore its headquarters for its Asia Pacific operations that include clinical research services, clinical supplies distribution, central lab services, and contract sales and marketing. Covance (Princeton, NJ, www.covance.com) also has an office and a central laboratory operation in Singapore.
Clinical packager Fisher Clinical Services (Allentown, PA, www.fisherclinicalservices.com) has been operating distribution and warehousing services in Singapore for about five years. "There's a lot of local interest [in pharmaceutical research], and local studies are being done," explains Jennifer Worsfold, who oversees the Singapore operation at Fisher's UK site. "We generate work there and draw from the local workforce. It's a good partnership."
One homegrown player is contract biomanufacturer A-Bio Pharma Pte Ltd. (www.a-bio.com). A-Bio offers cell line and process development and small-scale GMP manufacturing for mammalian cell based biologics using culture technology in its 60,000-ft2 facility. A-Bio signed a clinical supply service agreement with GlaxoSmithKline last fall to develop and produce clinical lots for a vaccine product.
Albany Molecular Research Inc. (AMRI, Albany, NY, www.albmolecular.com) is the latest addition to the Singapore CRO scene, with a research operation that opened earlier this year. The company has opened a 15,000-ft2 laboratory and will focus on medicinal chemistry. Ultimately, AMRI expects to invest between $3 and $5 million in its Singapore operation.
Although Singapore's capabilities in organic synthesis is less well-developed than some other areas, according to AMRI senior vice-president Michael P. Trova, PhD, the government has committed to train and educate scientists in that specialty. The SEDB's Beh says the government also is planning for a new chemical statistics laboratory and initiatives to support the increasing use of molecular imaging in drug discovery.
One of the constant themes during the past year has been the maturation of the pharmaceutical services industry and the way pharmaceutical companies buy services. Concentration on spending with a few major preferred providers, consolidation in the number of service providers, and increased outsourcing to India and China are all part of that maturation process.
Supplier consolidation is enabling large, financially sound contractors with broad capabilities to garner a predominant market share. That leaves the small and mid-sized CROs and CMOs to compete for a shrinking piece of the pie. The challenge for those small and midsize service providers will be to come up with strategies and differentiating characteristics that ensure that they can stay in the game.
CRO/CMO executives won't be up to that challenge until they move beyond the bromides they often use to describe their place in the market. The following are among the worst examples:
"We compete on quality." Acceptable quality has become a minimum threshold for admission to the bidding process and is seldom a distinguishing characteristic.
Value of lost sales. Many CRO/CMO executives have convinced themselves that pharmaceutical companies won't move development activities offshore because the opportunity costs of delay are too great. They tell themselves that compared with the daily sales of a moderately successful drug, the amount spent on their development services is minimal and that pharmaceutical company executives would be foolish to delay a product launch even a day over an issue of cost.
Unfortunately for them, such arguments don't hold water for their clients. Aside from being pretty abstract, the argument doesn't comport with reality: There are so many factors that will delay a new-product filing that the implications of any single delay are not significant. A new drug approval is more likely to be delayed by a scientific issue, problems in patient recruitment, or internal bureaucratic snarls than it is by the few extra weeks required to source clinical trial materials in India.
Creation myths. Small outsourcing provider companies often get caught up in their own "creation myths" (i.e., beliefs and values articulated by their founders that somehow make them different from the rest of the industry). Executives in these companies will often tout what makes them special to prospective clients, in the expectation that clients' empathy will increase their desire to do business with them.
Companies caught up in their own creation myths often fail to realize that their clients have their own strategies and business objectives that have nothing to do with the vendor's self-perception. A creation myth that favors slow growth does not make you more competitive to a client looking for globally capable, financially transparent preferred providers.
Executives of CROs/CMOs that still hone to these homilies need to assess industry trends more objectively, from a customer's viewpoint, not their own. The next 10 years in the pharmaceutical industry will be very different from the previous 10 years, and changing with the times will require a new way of looking at their companies.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.914.1203, fax 703.914.1205, firstname.lastname@example.org, www.pharmsource.com.